Mutual Fund Roundup: January 2011

Market Overview

While the Indian equity markets (BSE Sensex) ended the last month of the calendar year 2010 (December 2010) on a positive note (by gaining 987.8 points or 5.1%), the first month of calendar year 2011 (January 2011) saw the bears tightening their grip. In the month of January 2011, the BSE Sensex corrected by -10.6%, and so did the S&P CNX Nifty (corrected by -10.2%). The Indian equity market seemed uncomfortable as WPI inflation (8.43% in December 2010) once again began its northbound journey fuelled by food inflation remaining in the double digit territory (on account of rising prices of food articles - especially onions) and rising prices of crude oil. Moreover, the RBI also revised its inflation forecast upwards (in its third quarter review of monetary policy 2010-11, held on January 25, 2011) for March 2011 from 5.5% to 7.0% which also remained a concern for the markets. The IIP number of 2.7% for November 2010 (data released in January 2011) also acted as a spoil sport which also led to the bears dominate the bulls.

 

In the U.S. as their GDP expanded by 3.2% in the fourth quarter (of their financial year) and the jobless rate too came down (to 9.7% in December 2010), the U.S. dollar became stronger which led to people not taking refuge under the precious yellow metal - gold. But downfall in gold was well arrested not ruling out the fact that the economic recovery was fragile, and Euro zone too was in a situation of a debt overhang.

 

Like the last couple of months, crude oil prices too continued to maintain it sky rocketing journey the prices climbed up by 6.6% as the commodity asset class looked to be the favourite investment destination for most foreigners. Moreover, the political unrest in Egypt, threatened to destabilise the oil-rich Gulf region as supplies to oil consuming nations was impacted. (Oil prices are sensitive to the supply disruptions)

 

The 10-Yr G-Sec yield after falling below the 8.0% mark, in the previous month; once again hardened (by 24 basis points) in the month of January 2011, as the Reserve Bank of India (RBI) in an attempt to tame WPI inflation rose policy rates by 25 basis points (both the on the repo as well as the reverse repo) in its third quarter review of monetary policy 2010-11, held on January 25, 2011. Moreover, tight liquidity situation prevailing since October 2010 also attributed towards the upward movement of the yields of both the short-term as well as the long term debt papers.

 

Monthly Market Roundup

	As on Jan 31, 2011	As on Dec 31, 2010	Change	% Change
BSE Sensex	18,327.8	20,509.1	(2,181.3)	-10.6%
CNX Midcap	7,922.5	8,857.2	(934.7)	-10.6%
Re/US $	45.9	44.7	(1.2)	-2.7%
10-Yr G-Sec (%)	8.15	7.91	0.24	24 bps terms of use.

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